When you can’t see the forest for the trees

The paintings can look like an abstract blur of colour from up close. But when you take a few steps back, the seemingly random strokes transform into water lilies and the reflection of the clouds above, capturing the constantly changing light and its interplay with the landscape. There are benches placed at MOMA several feet away from the paintings so that visitors can view and appreciate this monumental triptych in its entirety.

Sometimes you need to take a step back to see the bigger picture. Money, or rather our investments and life assets are no different. We tend to put things in buckets. For example, when we think of our asset allocation, we focus on the split between stocks and bonds in our investment portfolio. But anything of value can be considered an asset - from traditional public market securities like stocks and bonds, to cash deposits at the bank, to private investments such as real estate or your wine collection. We should think about our overarching allocation of wealth in a holistic manner across all our assets.

Most of us have cash in one or two bank accounts, some unit trusts with one brokerage, a mix of stocks and bonds with another brokerage, a CPF account with a mixture of cash and CPFIS investments, restricted shares from a former employer, some real estate or private business interests that should all be taken into account. Because in reality, we have one investment portfolio that is just divided into separate buckets. In aggregate, the buckets form one portfolio with its own risk and return characteristics. But it’s difficult to understand what these are when we focus only on the separate buckets.

Let’s say, for example, that your total net worth is $1 million with:

$250,000 in deposits at the bank;

$100,000 with Broker A, where 50% of your portfolio is in cash;

$100,000 with Broker B, where 10% of your portfolio is in cash;

$200,000 in CPF, where 30% is sitting in your OA; and

your property makes up the bulk of your remaining net worth.

Do you want to have a 37% ($370,000) allocation to cash? Is this overall allocation in-line with your investment goals and risk tolerance? You may not even have realized this.

Being a financially efficient person means allocating your wealth holistically so it works towards your goals. It does not matter if your investment portfolio did great last year if you had a huge over-allocation to cash.

Taking a holistic approach to your portfolio means looking at all your assets as part of a whole, rather than viewing them as separate buckets. When you only focus on the details of each ‘bucket’, it’s easy to lose sight of the forest for the trees.